For those who work for the federal government, there are some unique ways to save for retirement. First of all, since 1987, employees have been able to use the Federal Employees Retirement System (FERS). This uses three different sources for benefits:
- Social Security
- The Basic Benefit Plan
- The Thrift Savings Plan (TSP)
With both Social Security and the basic benefit plan, you pay into the system, and contributions are also made by the agency, helping you build up retirement savings over time. With the Thrift Savings Plan, using the power of compound interest, employees can often see their investments grow by roughly 10 times over 35 years. The government will also match contributions of 5%. From this perspective, the TSP can turn your own contributions into 20 times what you put into the plan, making this a very valuable resource.
Naming a beneficiary
One important thing to know about using these retirement plans is that they require you to set up beneficiary designations. You deliberately choose the person who will receive these benefits if you pass away. As such, these designations override anything that you put in your will.
For instance, if you name your firstborn child as a beneficiary because they are the only child who is born when you start investing, but your will says that the money should be split between multiple beneficiaries, it is still your firstborn child who would receive the money. The beneficiary designation takes precedence over the estate plan.
Using a trust
To give yourself more control over how the assets are distributed, you can also name a trust as the beneficiary. This means that any remaining assets are transferred into the trust at the time of your passing.
From there, you can name a trustee to distribute those assets and multiple beneficiaries who should receive payouts. The trustee may be allowed to use their own discretion, or you may give them specific instructions about how distributions should be made.
Using a trust in this way allows you to avoid any issues with the beneficiary designation overriding your estate plan. The trust itself is part of your estate plan and is funded by the retirement savings programs. This gives you more control over the outcome and may help the process go smoothly for your family.
Additionally, it gives you more control as you set up the rules for the trust. Instead of the assets simply being transferred to a beneficiary who can then use them as they choose, the decisions you make in advance dictate how your money will be used, even after you have passed away.
Setting up your estate plan
It can be a complex process to invest in these retirement programs, determine your beneficiaries, and use a trust to incorporate the savings into your estate plan. It is very important to understand what legal steps to take, and it can help to work with an experienced law firm at this time.